Consolidated Rock Services Pty Ltd v Carr Civil Contracting Pty Ltd - [2014] WASC 215

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: CONSOLIDATED ROCK SERVICES PTY LTD -v- CARR CIVIL CONTRACTING PTY LTD [2014] WASC 215

CORAM: McKECHNIE J

HEARD: 4 - 8 NOVEMBER 2013

DELIVERED : 20 JUNE 2014

FILE NO/S: CIV 2837 of 2010

BETWEEN: CONSOLIDATED ROCK SERVICES PTY LTD
Plaintiff
AND
CARR CIVIL CONTRACTING PTY LTD
Defendant

Catchwords:

Contract for delivery of common fill rock material - Whether strict duty to deliver material compliant with specifications - Compromise agreement - Extent to which binding - Nature and extent of representations - Whether misleading and deceptive

Legislation:

Nil

Result:

Plaintiff's claims dismissed
Defendant's counterclaim succeeds

Category: B

Representation:

Counsel:

Plaintiff: Mr T O Coyle
Defendant: Ms K J Levy

Solicitors:

Plaintiff:     Lavan Legal
Defendant:     Kitto & Kitto
Defendant from 24/1/14 :     Danaghers

Case(s) referred to in judgment(s):

Cooper v Australian Electric Co (1922) Ltd (1922) 25 WALR 66
Hoenig v Isaacs [1952] 2 All ER 176
Jones v Dunkel (1959) 101 CLR 298
Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632

TABLE OF CONTENTS

How this matter comes to court
The trial
Impressions of the witnesses
The pleadings
The result
CRS personnel

(a) Mr Astill

(b) Mr Bartlett

Mr Astill's evidence about Mr Mauritz
Mr Bartlett's evidence about Mr Mauritz

Carr personnel

(a) Mr Blayney

(b) Mr Roberson

(d) Mr Glover

The tender and subsequent agreement with Rio Tinto
The Rio specifications and their importance
CRS was aware of the Rio specifications
Request for a change to Rio specifications
The importance of compliance with the Rio specifications
An engineer's discretion to allow material that was non‑compliant
Possible sources of common fill
The 6‑Mile Borrow pit (Carr) is unsuitable
Mount Regal Quarry (CRS) is suitable
Preliminary discussions between CRS and Carr
Meeting at Mount Regal Quarry
Meeting at the Carr Office
A contract is prepared but not signed
A supply agreement is reached
A purchase order is given by Carr to CRS
The 7-Mile Project earthworks

Blending process
The sampling process
10 certificates of non‑compliance
The testing process

Delayed provision of certificates
Common fill from Mount Regal Quarry is depleted
The discovery of grossly non-compliant material

Non-compliance test result May 2009
The settlement with Rio Tinto

The agreement to pay CRS

Insolvency of CRS
Arrangements to pay in May 2009

Carr's decision makers knew of the problems with the common fill material
Findings on the evidence
The plaintiff's case
What are the consequences?
The plaintiff
The compromise agreement
Misleading and deceptive conduct
Claim for breach of duty of care
Loss and damages
Other work

Conclusion

McKECHNIE J:

How this matter comes to court

In 2008 Rio Tinto Ltd, a multi‑national mining company, decided to build a gas turbine power station at a place known as the Seven Mile site out of Karratha. Specifications were issued for the job and Sinclair Knight Merz (SKM) were appointed as project managers. The defendant, whom I will now refer to as Carr, tendered for an aspect of the work which involved hauling a blend of rock known as 'common fill' and building the base for the power station. The Rio specifications for the common fill were set out by Rio Tinto and included limits on the liquid limit and the plasticity index. These are known as the Atterberg limits. Other matters were specified but these are the only relevant ones.
Carr had a borrow pit known as the '6‑Mine Borrow pit' but decided not to take common fill from it. Instead Carr entered into a contract with the plaintiff, Consolidated Rock Services Pty Ltd (CRS), to deliver between 400,000 and 450,000 tonnes of common fill from the Mount Regal Quarry in conformity with the Rio specifications. The Mount Regal Quarry contained common fill returned from an earlier Woodside job. The Rio specifications also required that every 2,500 cubic metres would be sample tested and a compliance certificate submitted.
Before final agreement meetings were held between representatives of CRS and Carr. These meetings were attended by Mr Kurt Mauritz for CRS. Mr Bartlett also attended one meeting. One meeting was held at Red Hill near the Mount Regal Quarry. A second meeting was held in the offices of Carr in Karratha.
As things turned out, there never was a formal written agreement between the parties, apart from a supply order. Mr Roberson of Carr prepared an agreement and amended it after further negotiations about price. Mr Mauritz did not want to sign the agreement and preferred a supply agreement. It was Mr Jenkins' job to follow up but because of pressure of work he did not do so. A supply order was given and supply of common fill material to the 7‑Mile site commenced. The period of supply concluded in March 2009. During the course of supply, compliance certificates were issued to Carr. Mr Bartlett said that some were supplied by email and some hand delivered. Mr Roberson thought that all were supplied by email and none were hand delivered. Nothing turns on this difference of recollection.
There was a backlog in the provision of certificates due to delays in the Western Geo Laboratory in Karratha. The Western Geo Laboratory is an accredited NATA (National Association of Testing Authorities) laboratory which was very busy. However, certificates were provided from time to time, including 10 certificates that indicated that the samples taken were non‑compliant because they exceeded the Atterberg limits.
In December 2008, SKM raised concerns and stopped accepting delivery because the material being supplied exceeded the Rio specifications. Compliant certificates were subsequently provided and delivery resumed.
Within days after completion of the contract in March 2009, CRS went into administration and eventually into liquidation. The action is brought by the liquidators.
In May 2009 Mr Blayney, the managing director of Carr, was distracted by personal matters and on leave. In early May, Mr Roberson received a letter from SKM detailing significant concerns about the common fill that had been laid, particularly in an area where the gas turbines were going to be placed. SKM had taken samples from different places on the pad and the results indicated the Atterberg limits were seriously exceeded. Mr Roberson discussed the matter with Mr Blayney and wrote back to SKM.
Meanwhile the administrators (subsequently liquidators) and in particular Mr Land, had gone through the books of CRS and discovered that Carr owed a great deal of money to CRS. Mr Land spoke with Mr Glover, the financial controller of Carr, who acknowledged the debt but explained that they had cash flow pressures. Mr Land sent Mr Glover a draft letter which Mr Glover adopted, signed on 29 May 2009 and returned a few days later. Effectively, Carr agreed to pay $100,000 a month and interest at 15% on the outstanding balance. However, only one payment was ever made. Further tests on common fill material removed from the pad at the 7‑Mile site confirmed that the Atterberg limits were grossly exceeded. Mr Blayney instructed Mr Glover to cease all further payments to CRS. In the end Rio Tinto had to remove a great deal of the common fill at a cost, which counsel for Carr suggested, without objection, was $2 million. Naturally, Rio Tinto looked to Carr for payment. Carr eventually settled with Rio Tinto for the sum of $500,000 by way of a contract variation which was deducted from the final progress payment.

The trial

And so this matter comes to court. CRS as plaintiff sues Carr for the balance of the payment due under the original contract and under the compromise agreement seeking payment of the balance of the principal and interest.
Carr resists the claim on a variety of issues, including a breach of a fundamental term of the agreement and estoppel. By counterclaim, Carr seeks damages from CRS for breach of contract, misleading and deceptive conduct under the Trade Practices Act 1974 (Cth), and negligent and false misrepresentations.
The trial was played out with evidence being taken over three days. CRS called four witnesses. Mr Bartlett and Mr Astill both had operational responsibility of the Mount Regal Mine. Mr Thackray was joint administrator and liquidator, and Mr Land worked with Mr Thackray.
CRS did not call Mr Kurt Mauritz, a key figure as the guiding mind of CRS, and the person who had entered into the original agreement and made statements about performance on which the defendant's rely. Letters were tendered indicating that the solicitors for CRS had sought his evidence. Mr Mauritz' solicitors had written back declining to give assistance, although indicating he would answer a subpoena. Mr Thackray explained that Mr Mauritz had requested release from all outstanding liabilities which Mr Thackray was not prepared to allow.
Carr seeks a Jones v Dunkel (1959) 101 CLR 298 inference in respect of Mr Mauritz' evidence. However, I will not draw such an inference. First, I do not think it is necessary. In the absence of Mr Mauritz, the evidence of Carr's witnesses, in particular Mr Jenkins, is unchallenged. Secondly, there is reasonable explanation why Mr Mauritz has not been called. Calling a witness 'cold' without a written witness statement is often a courageous step and it is reasonable that a liquidator may be advised against such a step.
Carr also called four witnesses. Mr Blayney who was then the managing director of Carr, Mr Roberson and Mr Jenkins who were joint project managers for this project, and Mr Glover, the financial adviser.

Impressions of the witnesses

The witnesses speak of events nearly four years ago and about matters that were probably unremarkable at the time. I do not find that any witness was being deliberately untruthful or evasive. I accept as normal and reasonable, their lack of memory about certain events which were put to them. Although neither Mr Bartlett nor Mr Astill are engineers, I am satisfied that each of them had appropriate skills to select, blend and, importantly, sample the common fill taken from the quarry.
Mr Roberson struck me as a thoughtful witness. On several occasions he asked for time to consider a question before answering it. Mr Blayney was combative, if not a degree pugnacious, in cross‑examination. It is obvious he has deep feelings about the actions of CRS and their effect on Carr. I think he unnecessarily downplayed the importance of the letter from SKM of May 2009, a letter which Mr Roberson, by contrast, regarded seriously. However, I do not regard Mr Blayney as an untruthful witness.
Except for the oral representations said to have been made by Mr Mauritz which are critical to the terms of the contract and claims of misleading and deceptive representations pleaded in the counterclaim by Carr, most of the narrative is detailed in the documents and, in particular, the lengthy email exchanges between the parties, the compliance certificates and other business records.
One important matter is the controlling mind and knowledge of Carr at various points. Mr Jenkins and Mr Roberson were both project managers. Mr Glover was acutely conscious and aware of the financial position under the contract. Moreover, as Mr Blayney said in his evidence, he appointed Mr Jenkins and Mr Roberson to manage the task and did not oversee every aspect of their work. I am satisfied that relevantly the three represent the mind of the company at material times and in particular were a repository of knowledge.
Mr Blayney downplayed the significance of the SKM letter of May 2009. This turns out to have been a mistake on his part. However, he was aware of the issue about the common fill when he conferred with Mr Glover before Mr Glover sent the reply back to Mr Land compromising the debt.

The pleadings

Notwithstanding the best efforts of case management, the pleadings were amended before trial and then at trial by both the plaintiff, CRS and the defendant, Carr.
Despite opposition to both sets of amendments, I allowed each party to amend so that the true issues between them could be exposed.
At the beginning of the trial the defence had one dramatic defect. Until the pleadings were amended on the fourth day of trial, both the defence and counterclaim and counsel's opening had asserted that CRS had provided test certificates throughout the contract that were all compliant with the Rio specifications. However, it is obvious that 10 test certificates were non‑compliant. Mr Roberson acknowledged that they were non‑compliant and knew that there were non‑compliant test results. Counsel for CRS was understandably opposed to amendments which effectively abandoned that plea and pleaded instead that CRS failed to deliver consistent material. I allowed the amendment of this pleading for two reasons. First, because I consider it does flow from the amendment to the plaintiff's pleading which I also allowed and which, in part, converted an admission into a denial. Secondly, because the pleading in fact aligned more closely with the evidence that had been given in the trial.

The result

For the reasons which follow a more detailed discussion of the evidence than this overview, the plaintiff's action should be dismissed and the defendant's counterclaim substantially allowed. In summary, CRS agreed to the extent of guarantee that all common fill material would comply 100% with Atterberg limits in the Rio specifications. This was essential. CRS failed to do so and as a consequence Carr has no obligation to complete paying for something which they did not agree to: non‑compliant common fill material.

CRS personnel

(a) Mr Astill

Mr Astill commenced employment with CRS in 2004. Throughout his employment, he was purchasing and logistics manager, and project manager, predominantly responsible for purchasing equipment and operational and maintenance spares, and the logistics of the CRS drill and blast quarry operations.
In his role as project liaison officer for the Mount Regal Quarry, Mr Astill dealt with representatives of Carr on a regular basis, including Mr Jenkins and Mr Roberson. His general dealings included invoice compilation, product tracking, and receiving and forwarding sample test results for 'common fill' products issued from the Mount Regal Quarry. Prior to the project, Mr Astill did not recall CRS ever being involved in a project with Carr that required CRS to supply Carr with common fill material. They had previously worked together in respect of drainage works which involved the use of light rock armour class material, which is different from common fill.

(b) Mr Bartlett

Mr Bartlett has over 20 years' experience in the mining and quarry industries and is currently working as an operations director for a quarry. Before commencing work with CRS, he had worked for a number of different companies in the quarry industry.
In late 2008, he was approached by Mr Kurt Mauritz to assist CRS in relation to its operations at the Mount Regal Quarry. By November 2008, he was working as a consultant for CRS as a fly‑in fly‑out consultant.
Mr Bartlett described his role with CRS as a consultant to best achieve the Rio specifications. He was not involved in loading material on to a truck. CRS employed a quarry manager, a quarry supervisor, operations manager, and project manager. There were 40/50 people working in the quarry of whom maybe 15, 20 were working on the Carr project.
Mr Bartlett was responsible for advising CRS how to properly blend the quarry materials so that their Atterberg indexes could be manipulated to meet relevant Rio specifications; to blend, test and ensure that the common fill material at the Mount Regal Quarry could be supplied to Carr to conform to the Atterberg limits at the lowest possible plasticity and liquidity levels, preferably at rates of 35% and 20% respectively. He also would generally inform CRS the best practices to implement so as to ensure the quarry ran in the most efficient and cost effective manner. Mr Bartlett was involved in quarry operations for other companies which meant that he was only on site at the Mount Regal Quarry for one week per month.
Mr Bartlett ceased employment with CRS in or around early 2009 but continued to work with the administrators from February 2009 to around February 2010 with responsibility for winding down the operations at the Mount Regal Quarry and overseeing the sale of CRS property.

(c) Mr Kurt Mauritz

There appears to have been two people named Mauritz working for CRS. The trial was concerned only with the words and actions of Mr Kurt Mauritz.

Mr Astill's evidence about Mr Mauritz

Mr Mauritz was managing director and had the day‑to‑day running of the business. Mr Mauritz was neither director nor quarry manager, however he managed the CRS operations with the authority of these positions. Mr Astill reported to him. As an employee working for Mr Mauritz for five years, he observed that Mr Mauritz was across the majority of actions within the business. If Mr Astill received an email, for example, from the testing lab, he would forward that to Mr Mauritz.

Mr Bartlett's evidence about Mr Mauritz

Mr Mauritz was the managing director and had control over everything that happened. During the period he was working with the company, Mr Bartlett reported to three people, Mr Astill, Mr Mauritz and Mr Geoff Pember who was his general manager. He probably reported to Mr Pember more than Mr Mauritz.

Carr personnel

(a) Mr Blayney

Mr Blayney is a qualified civil engineer. He holds a Master of Business Administration (Technology Management) and a Bachelor of Engineering (First Class Honours in Civil Engineering). He was Managing Director at Carr in 2008 to 2009, having purchased Carr with his wife in 2002. Carr has been sold. He is currently employed as a consultant assisting with the handover of company operations.
Carr had been undertaking Rio Tinto work since about 1989. In 2002, when Mr Blayney purchased the company, in excess of 90% of the work was for Rio Tinto which remained the primary source of Carr's work, about 60% ‑ 70% in 2008/2009.
By 2008/09 Carr had in excess of 120 employees and revenue in excess of $60 million. By 2008/09 Carr had expanded its operations, stretching from Geraldton to the Kimberley.
At any one point in time the company would be committed to between three and four jobs that it considered large projects (value in excess of $5‑10 million) together with approximately 20 ‑ 30 smaller jobs.
Because of the amount of work Mr Blayney delegated authority.
In cross‑examination Mr Blayney said he relied on the co‑managers - Mr Roberson, Mr Jenkins and also on Mr Glover. They reported almost daily.
I was – I lived in Karratha. So that's my home address. But at different stages of the – throughout the duration of the job I wasn't necessarily in Karratha.
…
[S]o for about four or five weeks over the May/June period I was in Perth (ts 278).
By May 2009 Mr Jenkins had left the company:
[I] was going through some personal issues and so they were very good to me.
You didn't tell Mr Roberson not to contact you though during that time?---No (ts 278).

(b) Mr Roberson

Mr Roberson is a civil engineer with more than 10 years experience employed now by WBHO Civil Pty Ltd, parent company of WBHO‑CARR Pty Ltd, formerly known as Carr Civil Contracting Pty Ltd.
Effectively he has been employed by Carr since February 2007. Since November 2010, Mr Roberson has been employed as the project manager (Karratha and Geraldton). During the period October 2009 to October 2010, he worked in Karratha as estimating manager. From February 2007 to October 2009, he was the operations manager, Karratha, working with a variety of large clients.

(c) Mr Jenkins

Mr Jenkins has over 13 years experience within the civil construction industry with a strong focus on mining infrastructure, road works and subdivisions. He has developed skills in cost control and forecasting projects.

From March 2008 until July 2012, he was employed by or a contractor to Carr.
He started his career with Carr as project manager before moving into the role of construction manager based in Karratha.
He was appointed Project Manager for the 7‑Mile Power Station. Mr Roberson was the Operations Manager for Carr. All project managers reported to him. He understood from Mr Blayney that Mr Roberson was to work with him exclusively in relation to the 7‑Mile Power Station Project until it was completed.
1.During the period 2008/2009, in relation to the 7-mile Power Station Project, I reported regularly to Mark Blayney. These reports were by:
(a)almost daily contact with Mark, in person or on the phone; and
(b)at a formal meeting of managers.
2.The formal meeting of managers was attended by all of the project managers responsible for projects being undertaken by Carr and by Mark Blayney.
3.In relation to reporting on the 7-Mile Power Station Project at the Carr weekly management meetings, sometimes I attended, sometimes Allan Roberson attended and sometimes we both attended (exhibit F2).
Mr Jenkins built and maintained a Gantt Chart used by both Carr and SKM for the 7‑Mile Project. As indicated by the Gantt Chart the 7‑Mile Pad was to have been completed by 10 February 2009. It was in fact completed in March.

(d) Mr Glover

Mr Glover is a qualified accountant and was and still is Carr's financial controller.

The tender and subsequent agreement with Rio Tinto

Mr Blayney says that in April 2008 SKM, acting as an engineering, procurement, construction and maintenance contractor for Rio Tinto, they invited Carr to attend a meeting to discuss the planned 7‑Mile Power Station Upgrade project.
The 7‑Mile Power Station project was part of a larger project undertaken by SKM on behalf of Hamersley Iron known as the Power System Upgrade which included construction of a proposed gas‑fired power station at the Pilbara Coastal area near Karratha, approximately 8 kilometres west of the Karratha town and approximately 3.5 kms to the west of the Rio Tinto 7‑Mile rail yard. Mr Roberson assumed responsibility for compilation of the Carr tender for the supply of common fill material. Common fill is a basic material, generally a by‑product or waste from quarry operations. Prior to the submission of the tender, a review was completed. Because of his detailed involvement during the tender compilation, Mr Roberson was subsequently appointed joint project manager together with Mr Jenkins.
In or about August 2008, Mr Jenkins assisted in the preparation of a tender for contract No. PSU/C/CC/1004, known as 7‑Mile Power Station Earthworks, Road, Potable Water Pipeline, Optic Fibre Cable and Fencing.
Other employees who assisted with the preparation of the tender were Mr Roberson, Project Manager, and Mr Frank Hobern, Estimator. A significant part of the work was the construction of the pad on which the power station was built. Other works included laying roads, pipes, cables and fencing.
Earthworks for the 7‑Mile Pad included site clearing, topsoil stripping and respreading, bulk excavation, embankment foundation preparation, embankment construction and sub‑grade preparation.
Following removal of the topsoil from the 7‑Mile Pad, the area was to be excavated to a depth of 300 mm below the final sub‑grade surface. The exposed surface was then to receive common fill material.
The common fill material to be imported was required to comply with certain criteria which are set out in the Rio specifications. Among those criteria, the common fill material was required to have a liquid limit of less than 35% and a plasticity index less than 20%.
Carr entered into an agreement with Pilbara Iron Pty Ltd (Rio Tinto) on or about 10 October 2008 (exhibits 5, 6, 8 and 11). This was before Carr entered into the supply agreement with CRS. In summary, on Mr Roberson's understanding which is accurate:
34.I understood that the terms of the 7-Mile Power Station Upgrade project Contract required:
(a)the works to commence on 10 October 2008;
(b)Completion of 7-Mile earthworks pad for the Switchyard Area, Site Compound Area and Heavy Access road (7‑Mile Earthworks), to be completed by 12 December 2008;
(c)CARR would be liable for liquidated damages calculated as $25,000 for each day that the 7-Mile Earthworks remained incomplete;
(d)Common Fill used for the 7-Mile Earthworks must conform with the standard Rio specification for Earthworks, including that it have a liquid limit less than 35% and a plasticity index less than 20% (Rio Spec). Document [exhibit 6] and [exhibit 5].
(e)CARR was to provide to Rio Tinto, 1 conforming test certificate from a NATA accredited provider for every 2500 cubic metres of common fill material delivered to the 7-Mile site [exhibit 5].

The Rio specifications and their importance

The Pilbara Iron Pty Ltd Standard Specification - Civil and Structural SS‑C101 Earthworks - encompassed the 7‑Mile site works and was part of the Carr contract with Rio Tinto, I shall refer to as the 'Rio specifications' (exhibit 1).
The contractual documents included very detailed Rio specifications for every aspect of the development, including specifications for common fill. However, the focus of this trial was much narrower. Eventually the common fill on the 7‑Mile pad was found to be non‑compliant in relation to the Atterberg limits for liquidity and the plasticity index. The Atterberg limits are a basic measure of the critical water content of fine grain soil and measures its shrinkage limit, plasticity and liquid limit.
The test results for the Atterberg limits are exhibit 38. Mr Bartlett described the testing for plasticity index:
[T]hat test is conducted on the 75 micron envelope, so that's the sieve size that will manipulate or adjust the result. So if you're - in simple terms, if you wish to change it, either lower or increase the plasticity index, you need to adjust the content of the 75 micron envelope.
And how would you do that?‑‑‑Blend in sand or a non-plastic product into it. But it has to be of that size because that's the size that they conduct the test on (ts 115).

CRS was aware of the Rio specifications

An email from Mr Jenkins to Mr Astill with a copy to Mr Mauritz, dated 3 October 2008, further copied to Mr Bartlett on 16 December 2008 (exhibit 9), listed the Common Fill Material Selection Criteria:
Common Fill may be used for general filling where Select Fill has not been specified on the Drawings or in this Specification. Common Fill shall satisfy the following criteria:
a)is free of all organic and deleterious material;
b)it has a liquid limit less than 35% and a plasticity index less than 20%;
c)shall be well graded and comply with the following grading criteria.
The Rio specifications also set out a sieve size (CMM) and percentage required for acceptance. Mr Bartlett had heard of plasticity index and liquidity index and the Rio specifications. He agreed the Rio specifications identify allowable percentages and certain characteristics of common fill. Mr Bartlett said he knew the Atterbergs requirement and the four characteristics - plasticity index, plastic limits, liquid limit and linear shrinkage. If the liquid limit was much higher than 30%, it would be a much clayier product. If it got wet it would affect its ability to perform; more so with the plasticity index.
Mr Blayney asserted Mr Mauritz knew about the Rio specifications:
I also know that in discussions that I had with Kurt, he stated to me that he was fully aware of the Rio specification (ts 279).
I find that CRS, and in particular Mr Mauritz, were aware of the Rio specifications as they related to the Atterberg limits before agreement was reached with Carr for the supply of common fill material.

Request for a change to Rio specifications

Mr Jenkins requested Rio Tinto to change the Rio specifications by email dated 30 October 2008 (exhibit 20). The letter accompanying the email (exhibit 21), after referring to the Western Geotechnic sample report, said:
[H]owever they are only just within required specification. Due to this small margin and the material being common fill, not an engineered product, there is concern that some future test results may fluctuate over the required specification.
Carr requested a change to the Rio specifications to increase the liquid limit to greater than 45% and increase the plasticity index no greater than 25%. This was said to reflect the Rio specifications met on the Western Creek to Cape Lambert Rail Upgrade Project.
The request was met with a short response from Mr Merson on 31 October by email (exhibit 22):
Steve, at this stage please comply with the specifications of the contract until Perth office consider the request.
On 3 November 2011, SKM wrote back to Carr (exhibit 23) with the following comment:
We have reviewed your request and our comments are as follows:
-You have not indicated the clause of the Contract's General Conditions under which this request is lodged in. However, Clause 13(b) appears to be the most applicable.
-The argument that the material is a common fill not an engineering product does not provide an acceptable ground for relaxing the specification. It should be noted that this material will provide the foundation of the proposed Power Station structures and therefore must satisfy the minimum technical standards.
-Similarly, your comparison of the Contract's specification with that for a previous project, does not explain the relevance between the two projects nor the basis for adopting a more relaxed specification on the previous project.
In view of the above and considering there is insufficient details to enable appropriate evaluation of your request, we regret to advise that your request cannot be accepted.

The importance of compliance with the Rio specifications

Mr Blayney:
The testing regime is determined as a way of showing compliance with the Rio Tinto specification (ts 283).
The intent of a testing regime on 1 every two and a half thousand cubic metres, you say, is that the test is a representative sample of the material. Therefore if you're providing a compliance test, you know fully well that by the time the material gets onto the pad there is a likelihood that there are other subsequent testing can be done. So in order for you to show compliance then you have to show compliance at a specified rate knowing that all the material has to comply (ts 284).
[T]he intent of the compliance certificate is to show compliance to the specification.
…
Mr Coyle, the testing is deemed to be - a testing of a representative sample of that material. Therefore if we've got a test certificate that shows compliance, then that's the whole intent of quality assurance.
…
My suggestion to you is that the production or the generation of a compliance certificate in the circumstances we've just discussed, taken from a representative sample within a 2500 cubic metre lot, the production of such a certificate is not thereby a cast-iron guarantee that every single cubic metre within that lot will be compliant as well?‑‑‑If you're now talking about the test result provided by a supplier to a purchaser, then by the provision of that compliance certificate, the purchaser is then saying that they are guaranteeing that the material is compliant.
…
Mr Blayney, do you accept the proposition - and I'm not asking you to speculate about other people on how they might view this question - but do you accept the proposition that the generation of a compliance certificate in the circumstances we've just been discussing, does not by itself thereby constitute some sort of cast-iron guarantee that every single cubic metre in the 2500 cubic metre lot will be fully compliant, in other words, precisely match the certificate?‑‑‑Mr Coyle, if you're asking me if I produced a - a compliance certificate that showed compliance, would I give them that guarantee, yes, I would.
On what basis would you give such a guarantee?‑‑‑For the simple fact that knowing the repercussions of it not complying, I wouldn't allow that to occur. So if we're targeting 35 and 20, as the two figures in question, I would be instructing the people that are doing it to be targeting 30 and 15. So that there would be no question.
All right. You're aware - are you aware that CRS provided 10 certificates that didn't comply with the 35 and 20 per cent requirements?‑‑‑I am aware that CRS provided some certificates that were marginally outside specification.
When did you first become aware of that?‑‑‑Subsequent to this whole issue arising (ts 285 ‑ 287).

An engineer's discretion to allow material that was non‑compliant

Mr Blayney was insistent that there was an engineer's discretion and that the non‑compliant certificates were accepted by the engineer:
Because if they've been accepted by the engineer, then the engineer has got the discretion to deem that that material is compliant. Of note there is that test results that were passed up as you rightly showed that shows some about 37 and some with a liquid limit of 37 and some with a PI of 20 have been accepted by the engineer. Yet when they start to get test results that are wildly differing from that value then they, you know, I think - some stage the - yes, the job is stopped (ts 293).
Mr Jenkins:
So can I suggest to you that you had two reasons as of, say, the end of the supplies by CRS in March 2009, you must have had two areas - or two sources of knowledge to the effect that some of the CRS material was non compliant: first is this email of 16 - sorry, 17 December 2008, and secondly, the 10 non conforming certificates. Do you agree that both of those were known to you and that by those means you were aware that CRS even had, indeed, supplied a quantity of non compliant material?‑‑‑The tests that they supplied of non compliant is purely at the engineer's discretion of whether they want to accept it or not accept it.
I didn't ask you about anyone's discretion, and staying for a moment with compliance equating to less than 35 and less than 20, you knew, did you not, from the non conforming certificates that CRS had been supplying non compliant material?‑‑‑Yes. But it was accepted by Rio.
I didn't ask you for an explanation. And furthermore you knew back on 17 December 2008, that some of the material had been grossly non compliant according to SKM?‑‑‑Correct (ts 258).
In evidence Mr Jenkins was taken to the non‑conforming certificates. He did not accept that the quantities were non‑compliant:
But it's not up to us to decide whether that material come to site (ts 255).
Mr Roberson:
It is the client's engineer's decision what he does with the results (ts 185).
Mr Roberson:
Would it be fair to say that one of your critical obligations was ensuring quality control in relation to CFM being trucked from Mount Regal to the power station site?‑‑‑That's correct.
I assume that from time to time you told Mr Blayney that there were certificates coming in that were not compliant?‑‑‑I didn't say that then.
Why not?‑‑‑I would pass it on to the client. I left it over for their discretion if they accepted or not and I haven't heard anything back, so I accept that they have taken note of the certificate (ts 190).
There were constant delays in getting results:
You didn't ask CRS to stop delivering at any time, because they were behind in their provision of certificates, did you?‑‑‑I have left the discretion over to the client (ts 195).
I have considered Mr Coyle's submissions and cross‑examination but am satisfied there was such a thing as engineer's discretion. It was a discretion to accept non‑compliant common fill material. If material was accepted then CRS can be taken to have complied with its agreement in relation to that consignment, the subject of the sample.
In view of the delays in provision of certificates, I can well understand why an engineer might accept non‑compliant material that did not exceed the Atterberg limits by a great margin, when the alternative was to stop delivery and remove 2,500 cubic metres or more from a time sensitive job.
The non‑compliant certificates issued during the supply period were around a short time period.

Possible sources of common fill

The 6-Mile borrow pit is located at tenements M47/450, Dampier Highway, Karratha on a lease held by Aquacarotene Limited (AQL), with Carr managing all extraction activities pursuant to an agreement made in 2003.
The 6‑Mile borrow pit (Carr) is located between Karratha and Dampier, about 6 miles from the CBD. The Mount Regal Quarry (CRS) is on the Great Northern Highway, south of Karratha. The 6‑Mile borrow pit is north‑east, on the Dampier Highway between Karratha and Dampier. Both the 6‑Mile borrow pit and the Mount Regal Quarry were about the same distance to the 7‑Mile site.
During 2008, the only places located in or around Karratha from which common fill could be derived were the Mount Regal Quarry, Carr's 6‑Mile borrow pit and the Shire of Roebourne's borrow pit.

The 6‑Mile Borrow pit (Carr) is unsuitable

Mr Roberson compiled Carr's tender submission for the 7‑Mile Power Station Project based on sourcing general fill for use within pad construction from the 6‑Mile borrow pit.
The tender was costed with an allowance of $10.57 per tonne for the procurement of compliant common fill material, loading onto trucks and haulage to the 7‑Mile Power Station Upgrade Project from the 6‑Mile borrow pit. The costs were calculated:
(a)Payment to AQL under the terms of the management agreement for material extracted from the borrow pit: $1.00 per tonne;
(b)Payment to Carr as an off‑set of the upfront fee that Carr had initially paid to AQL under the terms of the management agreement that granted Carr the rights to manage extraction activities from the borrow pit: $1.00 per tonne;
(c)Royalty payment to Mines Department: $0.46 per tonne;
(d)Win and load material onto trucks in borrow pit: $1.12 per tonne; and
(e)Transport material in trucks from the borrow pit to project construction site: $6.99 per tonne.
Preliminary calculations of the capacity of the 6‑Mile Borrow pit were made prior to tender. The quantity of fill available was (conservatively) 3 million tonnes.
Mr Blayney was aware that material that complied with the Rio specifications had previously been supplied from the 6‑Mile borrow pit for use on other Rio Tinto expansion project sites.
That material had been sourced simply by digging and loading the material that was naturally occurring within the borrow pit area.
As a consequence, Carr's tender submission for the 7‑Mile Power Station Project was based on being able to source the required general fill in a similar manner.
After receiving an email from Mr Mauritz, Mr Roberson spoke with Mr Jenkins between 27 and 30 October 2008. They discussed the possibility of sourcing common fill from the 6‑Mile Borrow pit. This was not the preferred choice as it was further away from the 7‑Mile site than the Mount Regal Quarry. The material at the 6‑Mile borrow pit had a higher plasticity index, which meant it had to be mixed with sand or crusher dust to bring it within the Rio specifications. This would increase the cost of the material and also increase the risk that a sample would, even by a small margin, not comply with the Rio specifications.
Mr Roberson had discussions with Mr Blayney about which source of common fill material to use. Mr Roberson talked about costings that would be involved and the compliance of the material. He talked about the extent to which extraneous material would have to be used in the 6‑Mile Borrow pit operations for blending purposes. He did not have a conversation with Mr Blayney in respect of 112,500 additional tonnes. Nor did he have a discussion about a price difference of $1.27. There was a discussion about the fact that it would cost more to use material from the 6‑Mile Borrow pit. Mr Blayney said that material other than from the 6‑Mile Borrow pit was not of very good quality.

Mr Roberson said the quality of the material was more important than delay and the possibility of liquidated damages. If, hypothetically, the 6‑Mile Borrow pit was used and there was from time to time a non‑conforming certificate he would probably have sent it through and left it to the client or the engineers to decide (ts 202). [The engineer's discretion].
In evidence Mr Roberson was taken to exhibit 123 (a test certificate from the 6‑Mile Borrow pit test date 14 June 2012) showing a liquid limit of 51 and a plasticity index of 28 and another certificate test date 14 June 2012 showing 42 and 23. This evidence is admissible on the alternative hypothesis under which Carr seeks to prove its damages claim.
In Mr Roberson's re‑examination, exhibit 128 was tendered showing blended material - Stockpile 1, from the 6‑Mile Borrow pit.
The common fill material at the 6‑Mile Borrow pit was not compliant with the Rio specifications and required blending with crusher dust. In Mr Roberson's view the 6‑Mile Borrow pit was not the preferred source, as the tender price Carr had quoted on the tender for the 7‑Mile Power Station Project had been on the basis of paying $5 per tonne, the price advised by CRS.
It was always assumed that common fill material from the 6‑Mile Borrow pit would have to be blended.
Mr Blayney was taken through the calculation of $10.57 per tonne in relation to sourcing material from the 6‑Mile Borrow pit. The quantum of the cost risk was $381,000. 'Worst case scenario, we had to use 112,500 tonnes worth of crusher dust'. Carr would have done the same type of sampling as specified in the Rio specifications (ts 282).

Mount Regal Quarry (CRS) is suitable

The Mount Regal Quarry is located approximately 10 km south of Karratha on the Great Northern Highway. Mr Bartlett worked with Mr Mauritz during the time of his involvement with the Mount Regal Quarry and had worked with him previously though minimally. The Mount Regal Quarry is primarily a rock quarry but did have a stockpile of material from a Woodside project.
In late September 2008, CRS had between 400,000 and 450,000 tonnes of common fill material at Mount Regal Quarry.
By September 2008, Mr Astill knew, through conversations with various people in the Karratha mining and quarry industry, that Rio Tinto would be seeking tenders from companies interested in completing works at the project. He cannot now recall the precise details, but by around September 2008, he believed Carr was going to tender for the project. In late September or early October 2008, Mr Mauritz told Mr Astill he had spoken to Mr Blayney from Carr about the project with a view to becoming involved as a subcontractor or supplier.
Mr Mauritz and Mr Astill discussed supply to Carr and agreed CRS could supply the quantity of common fill requested at $5 per tonne on the basis that CRS would provide Carr with basic common fill material readily available from stockpiles at the Mount Regal Quarry. Mr Astill sent an email of 3 October 2008 to Mr Jenkins:
Look we're interested in 180,000 cubic metres of common fill at $5.00 per tonne.

Preliminary discussions between CRS and Carr

There were preliminary discussions including two crucial meetings at which Mr Mauritz made statements that form part of the agreement between the parties for the supply of common fill material.
Mr Blayney had known Mr Mauritz for a couple of years and from time to time had exchanged information in relation to possible works that would suit their respective companies.
Carr also supplied haulage services to CRS in the 12‑month period prior to the 7‑Mile Power Station Project.
Because of the 6‑Mile Borrow pit Carr had no previous requirement to purchase common fill material from CRS.
The Mount Regal Quarry which CRS was managing was primarily a rock quarry. Carr used CRS material prices for products such as aggregates and roadbase in tender submissions.
To the best of Mr Blayney's recollection, the common fill material that CRS was offering to sell Carr for use on the 7‑Mile Power Station Project primarily comprised material that had been transported to and deposited at the Mount Regal Quarry as a by‑project from a separate Woodside project.
During the tender clarification period for the 7‑Mile Power Station Project, Mr Mauritz had made contact with Mr Blayney.
Mr Mauritz stated, in effect, that 'I heard that Carr is the preferred contractor for the project'.
Mr Mauritz further said, in effect, that 'CRS is well aware of the Rio specifications and is keen to supply compliant general fill to Carr for use on the 7‑Mile project'.
Mr Blayney said to Mr Mauritz, in effect, 'please contact either Mr Jenkins or Mr Roberson as they will be responsible for managing the project'.
In or about October 2008, Mr Jenkins discussed with Mr Blayney an analysis of the CRS offer to supply, at the rate of $5.00 per tonne, general fill material that complied with the Rio specifications.
That analysis showed that whilst the material supply price was higher than that at which Carr could source the material from the 6‑Mile Borrow pit the increase was more than offset by the reduced haulage price that would apply to material from Mount Regal Quarry.
Mr Jenkins advised Mr Blayney that IES Resources had provided a quote of $3.30 per tonne for haulage from CRS Mount Regal Quarry to the project site as compared with Carr's allowance at the time of tender of $6.99 per tonne.
In addition to the overall price saving that was associated with using the CRS common fill material instead of common fill material from the 6‑Mile Borrow pit, Mr Jenkins and Mr Blayney discussed that the greater importance was supplying material which was compliant with the Rio specifications. CRS was assuming all risks associated with supply of compliant common fill material.
As a result of the analysis and review undertaken, Mr Blayney agreed with Mr Jenkins' recommendation that Carr source common fill material from CRS rather than the 6‑Mile Borrow pit.

Meeting at Mount Regal Quarry

This is the first meeting at which crucial statements were made.
Mr Astill did not clearly recall the meeting at Mount Regal Quarry around 6 October 2009. He had a number of meetings with Mr Jenkins and Mr Roberson. He vaguely recalls walking up to the top of Red Hill together:
And do you recall that just prior to walking up that hill, Mr Mauritz said to the three of you: Let's have a look at the test pit from the top?‑‑‑I don't recall the statement as such, but.
Do you recall that at the top of Red Hill was a test pit that was about two metres deep?‑‑‑There should have been three of them (ts 158 ‑ 159).
Mr Astill did not recall the actual statement '[t]his is where we take the test material from'. He could not recall the conversation.
Mr Astill was taken to exhibit 14, an email from him dated 23 October 2008 to Mr Jenkins:
Albert, can you please specify the other tests you require for this product? You mentioned them earlier today, but due to the accident we had to attend earlier, I can't remember what you requested.
Attached were Atterberg limits that were the test results from the slots cut into Red Hill. They all appeared to be safely under the 35% and 20% limit (ts 162).
Mr Astill did not recall being part of a meeting between Mr Jenkins, Mr Roberson and Mr Mauritz.
I only recall being in one meeting with Carr Civil ahead of the job, and that was, by memory, much earlier than that.
Which would have been the one on the hill, Red Hill?‑‑‑No. There was meeting in the town office.
…
Was that before or after the meeting on Red Hill?‑‑‑By memory, before, but - because I - by memory it was - it was simply an initial discussion on it, and around the fact that the job was out there. By memory, I don't think there was any tenders or anything out at this stage (ts 164 ‑ 165).
Having been shown an email (exhibit 9) dated 3 October 2008, the witness accepted that it may have been a different matter about which they had a meeting.
I have set out this evidence because it demonstrates that CRS cannot provide evidence to counter the Carr witnesses about this meeting. Mr Astill's recollection is patchy and does not contradict the Carr witnesses.
Mr Roberson:
19.On a date I can't recall, in the period 13 September to 3 October 2008, Steven Jenkins advised me, in effect that 'Consolidated Rock Services (CRS) has expressed an interest in providing the common fill material needed for the 7-Mile Power Station Upgrade Project from its quarry at Mount Regal'.
20.He further said to me, in effect 'I have arranged for us to meet with CRS at the Mount Regal Quarry to have a look at common fill material for the 7-Mile Power Station Upgrade Project'.
21.On a date I can't recall, in the period 3 October to 10 October 2008, in the mid-morning, I travelled by car with Steve Jenkins to the Mount Regal Quarry, which I understood was leased by CRS.
22.I met Kurt Mauritz and Dale Astill there. I understood that Mauritz and Astill were employed by CRS.
23.Mauritz and Astill asked Jenkins and myself to walk up onto the stockpile of common fill material at the quarry. Mauritz said, 'let's have a look at the test pit from the top' (or words to that effect).
24.When we got to the top, I looked at the test pit hole which was located at the top and about 2 or so metres deep, I can't recall if it was Astill or Mauritz that said 'this is where we take the tests of the material from' (or words to that effect).
25.I then heard Mauritz speak with Jenkins and I listened.
26.Jenkins said to Mauritz (in effect) 'I am concerned about CRS' loading capacity. In terms of how quickly CRS Can load material onto trucks and the number of loaders available they have on site, because CRS appear to have other operations running at the Quarry'.
27.I could see trucks driving in and out of the quarry at the time while we stood there.
28.I also heard Jenkins say among other things, in effect:
(a)we need 400,000 to 450,000 tonnes of material;
(b)the job is a 24 hour shift;
(c)there will need to be about 10 trucks;
(d)we can't afford any delays because there is a large cost involved with liquidated damages; and
(e)the fill has to comply with Rio Specification.
29.I understood that the phrase Rio Specification, referred to the standard specification for earthworks which I have referred to and which is set out in document [exhibit 5].
30.I heard Mauritz say among other things (in effect):
(a)supply and loading the material is not a problem;
(b)we are familiar with Rio Specification;
(c)CRS has supplied common fill material to another Rio Tinto Project, Rail Embankment but the specification for the Rail Embankment Project was more relaxed than the specification for the 7 Mile Power Station; and
(d)Dale Astill (from CRS) can send you results of material we have tested previously from the Mount Regal Stockpile that confirms it conforms with Rio specification.
31.While I was there, I don't remember seeing any person taking samples from the Stockpile.
32.Jenkins and I then walked down the stockpile, got into the car and drove back to our office.
Cross‑examined about the meeting at the Mount Regal Quarry:
We've stated that we need 400 to 450 tonne - 450,000 tonnes of material.
And who was that stated to?‑‑‑Kurt Mauritz.
And how did he respond?‑‑‑He acknowledged that they can supply.
…
Did he say anything more about the actual quantity he believed to be available to Mount Regal quarry?‑‑‑He believed that he's - he's got all the quantity, all the material there (ts 186).
Mr Roberson acknowledged he could have missed a survey document being shown to Mr Jenkins. The witness denied that certificates were handed over at the first meeting at Mount Regal Quarry.
On about 3 to 10 October 2008, Mr Jenkins arranged with Mr Astill to meet at the Mount Regal Quarry to discuss further the matters he had raised in his email.
On a date Mr Jenkins cannot recall, but in that period, he drove with Roberson to the Mount Regal Quarry where they met with Mr Astill and Mr Mauritz. When they arrived, Mr Mauritz suggested a walk to the top of the stockpile of fill material, known as Red Hill.
When they got to the top of Red Hill Mr Jenkins spoke with Mr Mauritz about Carr's requirements. Among other things, he said to him, in effect 'Carr will be operating on 24 hour shifts, using 10 trucks. I am concerned about the loading capacity of CRS, how quickly can you load the material onto the trucks'.
Mr Jenkins also said, in effect:
(a)Carr needs approximately around 180,000 cubic metres of fill material, can you supply that amount?
(b)the material will need to comply with the Rio Specification that I sent you;
(c)Carr cannot afford any delays as Rio has a large liquidated damages penalty'.
Mauritz responded to me and said among other things, in effect:
(a)we will have no problem loading the trucks in that time frame;
(b)180,000 cubic metres equates to about 400,000 to 450,000 tonnes, we can supply that amount;
(c)we are familiar with the Rio Specification and can supply compliant material for $5 per tonne.
39.During that meeting, Mauritz showed me some documents. To the best of my recollection, documents [exhibits 2 and 3] were among the documents he showed me.
40.I looked at the documents and concluded that they indicated that samples taken from the Red Hill stockpile complied with the Rio specification.
41.After looking at these documents, I said, in effect 'these results show the limits push a little bit out of spec and they are very old, we will need compliant and more recent test results. The results have to be 100% compliant'.
42.In reply, Mauritz said, in effect 'that's not a problem. I guarantee the material is 100% compliant. We will take samples today and Astill will send them to you'.
While on Red Hill Mr Jenkins could see a truck being loaded with common fill material. He became concerned that CRS would not have enough material to complete Carr's order and asked Mr Mauritz, in effect, 'Will you have enough to supply up to 450,000 tonnes?' Mr Mauritz then showed him another document which appeared to be a survey of the stockpile. He said, in effect, 'this survey shows there is more than 500,000 tonnes, more than enough for the 7‑Mile Power Station Project'.
Mr Jenkins subsequently recommended to Mr Blayney and Mr Roberson that an order be placed with CRS for the supply of common fill.
Mr Jenkins was cross‑examined:
Now, you attended at the Mount Regal quarry site on around 6 October or thereabouts. That's dealt with in your statement at paragraph 33. I want to ask you some questions about that. One of the matters that you raised was whether or not CRS would be able to supply between 400,000 and 450,000 tonnes, correct?‑‑‑No, I asked for 180,000 cube. The conversation to 400,000 to 450,000 tonnes was done by Kurt.
Well, let's just stick to what was said. What mention did you make of quantities?‑‑‑To 180,000 cubed.
Okay. Do you accept that subject to what rate you used that 400 to 450,000 tonnes is a reasonable extrapolation from 180,000 cubic metres?‑‑‑-I would say it's probably reasonable, but that's why Kurt did it not me because it's - he knows the material. It's his material.
And he showed you a survey document, didn't he?‑‑‑Correct.
Can I suggest to you that that survey document had a figure in cubic metres on it?‑‑‑To my recollection, I think it had tonnes.
All right. But at any rate, you looked at it, didn't you?‑‑‑Yes.
And you noted that what was on the survey was at least consistent with Mr Mauritz saying 'more than 500,000 tonnes'?‑‑‑Yes (ts 256).
I accept the evidence of Mr Roberson and Mr Jenkins about the Red Hill meeting. There is no contrary evidence and I regard each witness as credible. Where there was a difference in recollection, I prefer the evidence of Mr Jenkins who seemed clearer.
On or about 23 October 2008 (exhibit 13), Mr Jenkins received an email from Mr Omar Qasem, the SKM design engineer, to Mr Roberson asking about Atterberg limits. He asked:
[If] you have the results for standard tests send them please. Other tests can follow later.
On 23 October 2008 at 6.29 pm (exhibit 14), Mr Jenkins received an email from Mr Astill attaching test certificates from Western Geotech Laboratory. Mr Jenkins understood that these certificates related to the tests which had been promised to him by Mr Mauritz at the Mount Regal Quarry meeting. He reviewed the certificates and was satisfied that CRS could, as had been told to him by Mr Mauritz, deliver common fill which complied with the Rio specifications.
Mr Roberson knew that Western Geotechnics Pty Ltd were accredited by NATA and received a copy of test results from Coffey Geotechnics (exhibit 10) on 13 October 2008 taken off the 7‑Mile site pad area prior to stripping topsoil.
On 13 October 2008 Mr Roberson received an email (exhibit 12) from Mr Mauritz in relation to the road base specification. The email continued:
The material is close to MRWA Class A and the rate quoted is a special price that reflects the total volume of the project (including Common Fill) and is only valid if we can successfully negotiate the sale of the Common Fill as previously discussed.
On the same date Mr Roberson also received an email from Mr Astill, '… can you specify the other tests you require for this product?' He replied to the design engineer, Mr Qasem, on 23 October 2008 attaching test certificates (exhibit 15) showing the Atterberg limits for the fill samples from the Mount Regal Quarry which had been supplied to Western Geotech by CRS. In each case the Liquid Limit and Plasticity Index showed that the samples conformed to the Rio specifications.

Meeting at the Carr Office

Mr Jenkins:
67.On or about a date I can't recall in the period 30 October to 7 November 2008, I attended a meeting at the Carr office in Karratha, to discuss the matters raised in email [exhibit 19].
68.At that meeting was Roberson, Jenkins, Mauritz and a director of CRS. The meeting lasted for between one hour and one and a half hours.
69.Mauritz said, among other things (in effect) 'CRS can comply with the Rio Specification, but we won't sign to it because an odd test might fail'.
70.Jenkins responded, in effect, 'we want a 100% guarantee'.
71.Mauritz then said, in effect, 'to give a 100% guarantee we will have to charge $13 per tonne'.
Mr Jenkins said, in effect 'we tendered on the $5.00 per tonne you told us, if you can't do it, we will have to go elsewhere'.
In examination‑in‑chief Mr Jenkins expanded on his evidence of the meeting at Carr's office:
So this was the meeting in our office that Mauritz was at. They concluded that they couldn't supply - that they wouldn't comply 100 per cent with the material and they wanted to increase the price or change the specifications. We told them that we couldn't change the specifications; that we had tendered on the $5 per tonne and that's what we had to adhere to. A series of negotiations went backwards and forwards from there. They then threw at us that they wanted, you know, to engineer the product and wanted more money, etcetera, so negotiations went on.
Kurt Mauritz and there was a director from CRS. I'm not sure who he is. I just got introduced as he is one of the directors of CRS.
Well, you've just said that they wanted to charge $13 a tonne?‑‑‑Yes.
After that?‑‑‑So he asked for $13 a tonne. I responded that, 'I can't do that,' that that was outside of our budget. We had tendered for $5 that they offered. They elaborated further that they can't give 100 per cent compliant on the $5. A test result here and there may go outside of the specifications. We then negotiated backwards and forwards and we came to an agreement that they would supply the material.
Now, before you - sorry to hold you up there, Mr Jenkins. When you said 'they negotiated,' can you say what was said?‑‑‑Okay. Specifically, on the lines of Kurt would say he wanted $13 a tonne. I said we couldn't do it. We could do it for five. He then tried for $11 a tonne. I said we can't do it. Like, we've already submitted the tender. We signed a contract with Rio. If we can't do the deal at $5 a tonne that we would have to source material elsewhere. We then did have a conversation about where we would source the material from and we said that we would source it from Carr Civil 6-Mile borrow pit and that that - we could produce that material for around the $5 a tonne, which is the reason why I can't agree to the 13, as well as that we didn't have the budget to do so. Basically, I stuck to the $5 a tonne. Eventually, he said that he just cannot do it for $5. What's the most that I could do it for. I said the most that we would move to was $6 a tonne on the providing that they guaranteed 100 per cent compliance.
What, if anything, was said after you said that?‑‑‑They accepted that.
What words were used - do you recall?‑‑‑I do recall they accepted the proposal at $6 a tonne and said they will supply 100 per cent compliance with that $6 a tonne. They did ask to amend the subcontract agreement I provided them and wanted to move to a supply agreement. Again, I said 'no,' that we won't do that. We stick to the supply - the subcontract agreement that we originally sent them, that the terms still remain and then the agreement was made that the material would be supplied at that – at $6 a tonne, which is when I left there and, to the best of my recollection, Albert then amended the subcontract to reflect our agreement (ts 237 ‑ 238).
…
Kurt did all the talking. The director didn't really say much at all besides introduced himself, talked about, you know, basically the sales pitch.
…
It was agreed that day. There was no going away from it and thinking about it. It was agreed that we would supply the material through CRS and it would be supplied at $6 a tonne at 100 per cent compliance.
And was that everything that was agreed?‑‑‑Yes - sorry, my apologies, there was also talks about the loading times of the trucks; the fact that we had run a 24‑hour operation and that they need to keep up with 10,000 to 15,000 tonne per day. So they - I need a guarantee that they could handle that sort of volume of trucks coming through (ts 239).
Mr Jenkins, can you recall the words that were spoken at the Karratha office meeting in relation to these matters?‑‑‑In the agreement for the supply of $6 a cube, but they will need to supply 100 per cent compliant material in accordance with the specifications, which would be one test every two and a half thousand cube, that's 100 per cent compliant. That's the only way we would agree to the $6 a tonne.
So that's what you said?‑‑‑Yes.
And was anything said after that?‑‑‑They accepted it, and they - - -
You said they accepted that?‑‑‑Sorry, Kurt - my apologies - Kurt accepted that - - -
Can you recall the words he used?‑‑‑ ‑ ‑ assuring me that there is not a problem the material will supply. They have supplied it to other Rio projects, and it will 100 per cent comply.
Did he say anything further in relation to this matter, the materials testing?‑‑‑Not that I can recall (ts 242).

Mr Jenkins agreed he did not send to Mr Mauritz or Mr Astill, at any time at all, other pages of the Rio specifications document that set out the testing regime. However, it is clear that Mr Mauritz and Mr Astill were well aware of the Atterberg limits in the Rio specifications. Mr Jenkins agreed he had some expertise in forecasting projects, preparing costings and estimating. He was aware of situations where companies had failed because the costings might be okay but the contract was no good and they were not able to assert any contractual rights when contingencies came up; and situations where companies had failed because their costings had been wrong.
Mr Jenkins was taken to non‑compliance certificates for the 6‑Mile Borrow pit on 14 June and 19 June 2012. Email (exhibit 19):
For $5 per tonne, CRS cannot guarantee strict conformance with this specification (ts 251).
After dealing with other matters:
We reprice the supply and allow for modification of material.
COYLE, MR: So you recall receiving that email?‑‑‑I do.
And if I suggest to you that Mr Mauritz is saying to you we can't guarantee it at $5 per tonne. You're suggesting some options to deal with that?‑‑‑Which we already paid him 6.
…
Now, my question was whether prior to the meeting commencing whether he had mentioned to you some other dollar amount that he could do the job for?‑‑‑He could have. I don't recall.
…
He said in effect to give a 100 per cent guarantee we will have to charge $13 per tonne (ts 251).
…
No. It was a negotiation that goes backwards and forwards (ts 252)
[Now], I want to take you through what I think are some critical stages up to the culmination of the meeting in early November 2008. And as I understand your evidence, the culmination at the end is when Mauritz reluctantly agrees $6 and he says you're guaranteed compliance at $6?‑‑‑Incorrect, he didn't reluctantly agree to it, he agreed to it.
Well, but he wanted $13 and then 11. Are you suggesting that that was his first choice?‑‑‑No, that's the end negotiation. You go and buy a car, you don't offer your final price up front.
Can I suggest to you that given what Mr Mauritz had said, $13 and 11 and the email and the protracted negotiation, that as and when he agreed $6, you had reservations about whether or not indeed CRS could - would be able to produce all of the material at 100 per cent compliance?‑‑‑No, if I didn't believe they could do it, then why would I give an increase of a dollar per tonne if I - for nothing?
Because you're putting the contractual risk onto them as opposed to assuming it yourself. Is that not a good explanation for that?‑‑‑No, because whether the contractual risk sits with them, the risk, you know, it's still up to our reputation and my reputation. Why would I jeopardise my reputation if I didn't believe he could deliver?
Because Mr Jenkins, as things were supposed to work, there was supposed to be a test certificate in advance of each supply and you would monitor the certificates and you could control the quality, could you not?‑‑‑Correct.
So in those circumstances, if they have to do extra work to get a compliance certificate before they can ship out the next 2500 cubic metres, then you're in control and it's not your risk, correct?‑‑‑Say that again. If they ‑ ‑ ‑
If you - if things had moved smoothly, you would be getting a certificate for each 2500 cubic metres in advance of that material being transported?‑‑‑Yes.
You would check that certificate. If it was noncompliant you would say, 'Go and fix it all up, do a blending, whatever is required, don't start delivering until we get a new certificate'?‑‑‑Yes.
That's the way it's supposed to work?‑‑‑But they're the experts in the field, not me.
No, but you would control that process, would you not?‑‑‑No. How they get to the - material to compliant is their ‑ ‑ ‑
No, you control the process of only accepting deliveries as when they give you a properly compliant certificate?‑‑‑Yes, I don't control the process and how they get there.
I didn't say you did. You control the process of making decisions about whether or not you got a compliant certificate for the next lot and you are able to tell them not to deliver until they fix things up and give you a compliant certificate. Isn't that how it's supposed to work?‑‑‑Well, I can only provide a recommendation. At the end of the day it sits with the client, not with me, anyway (ts 253 ‑ 254).
Mr Roberson gave evidence that he attended the Carr's Karratha office meeting with Mr Jenkins, Mr Mauritz and a manager from CRS named Geoff:
55.During the meeting the discussion concerned the matters raised in the email [exhibit 19]. In particular, the topics included the Rio Specification and the price CRS would charge for fill material to ensure 100% compliance. At the end of the meeting, I agreed to amend the draft contract to reflect the changes which had been agreed, specifically the increase in price from $5 to $6 per tonne. I made those amendments on 14 November 2008 [exhibit 24]. I gave the draft contract to Jenkins to conclude.
Mr Roberson's recollection of detail from the meeting was patchy:
Can I suggest to you that there's evidence that Mr Mauritz said that he would have to charge around $13 per tonne to ensure 100 per cent compliance?‑‑‑I've got no memory of that.
I assume that you have very little recollection about the things in fact discussed, because it was so long ago?‑‑‑I can remember highlighted points out of the meeting that was important.
I assume that really today, the only things you can remember are these general topics?‑‑‑That's correct.
…
The material quoted was $5 per tonne. The discussion around the table, and that was the main topic of this meeting, was to improve the quality of the material and that would cost us an extra dollar. That was the main discussion and then the material needed to comply 100 per cent (ts 190 ‑ 191).
Mr Roberson's recollection of this meeting is fairly vague. However, Mr Jenkins has, I find, a good recollection of the essential matters raised in the meeting and I accept his evidence.
Mr Astill was taken to exhibit 26, the purchase order dated 13 November 2008.
And this date, 13 November … they have reached an agreement?‑‑‑Yes.
And that was your understanding?‑‑‑Yes.
Now, you weren't present when those terms were decided?‑‑‑Not that I remember, not that I recall.
That was something that, to the best of your recollection, happened between Kurt Mauritz, Steve Jenkins and Albert Roberson?‑‑‑Between Kurt and Carr Civil, whoever their representatives were (ts 166).

A contract is prepared but not signed

It was Mr Jenkins' responsibility to ensure that Mr Mauritz, or another CRS person, sign a contract. Mr Jenkins sent the contract to Mr Maurtiz by email but the 7‑Mile Power Station Project was already underway and he did not follow up.
In cross‑examination, Mr Jenkins agreed the draft contract was never signed. 'That was a fault on my behalf. I didn't follow up with Kurt' (ts 242).
The draft contract contained a Schedule of Prices: which included 'Common fill as per Pilbara Iron specifications'. The witness said the Rio specifications is the entire document:
I highlighted the critical items to CRS - to Kurt. However, when we were on the Red Hill stockpile having the initial conversations of them and of supplying the material to us, they assured me they were familiar with the Pilbara Iron specifications and they have supplied this material to other Rio projects (ts 243).
Mr Roberson was asked why he did not get the contract signed. He said he had passed it over to Mr Jenkins and put his trust in him. Mr Roberson had arranged for a draft Minor Works Subcontract Supply Common Fill Contract (exhibit 24) to be prepared and had an email exchange about this (exhibit 19).
On or about 27 October 2008 Mr Jenkins received a draft contract from Mr Roberson, a copy of which he sent to Mr Mauritz and received a response on 27 October 2008 to which he replied.
Mr Jenkins sent an email to Mr Mauritz dated 27 October 2008 (exhibit 19) (7.12 pm), copied to Mr Astill:
I can understand your point of concern as to the spec, but at the end of the day we need to come to some [form] of agreement as this is the spec that we have to comply with so the spec cannot change but I am happy to discuss another alternative possibly maybe have 99% of the tests complying.
As for the other points you have previously guaranteed me that the supply and loading of the material is not a concern of yours so I don't see what the issue is there.
As for the Road base change that is not an issue.
For your statement that CRS can't guarantee the material for $5.00 per tonne [sic] looking at it that way I agree but at the end of the day we are talking a total value of approx $2m I think for that kind of $$ there has to be some sort of guarantee.
Please consider this and give me a call as I believe we need to sit down at a round table and sort this out one way or another and sooner the better.
Mr Mauritz replied 10 hours later on 27 October 2008 (12.04 pm):
My comments on and concerns with your proposal are as follows:
1.The contract format is not suited to a material supply agreement. The document limits the use of subcontractors etc without approval from Carr. The format needs to be changed to a Supply Agreement rather than Minor Works Subcontract. I should have something more suitable.
I find that the written contract as drafted never became part of the documents evidencing the eventual agreement and has no significance.

A supply agreement is reached

On or about 24 October 2008, Mr Jenkins received an updated version of a drawing of the 7‑Mile pad area.
The email from Mr Mauritz of 27 October 2008 (12.04 pm) just referred to, continued:
2.As discussed, for $5.00 per tonne, CRS cannot guarantee strict conformance with the specification in relation to the Common Fill. If someone decides to be unreasonable about how they apply the Common Fill spec, I am sure that the material will fail from time to time. To proceed, we have 3 options available as I see it:
a.A relaxation of the specification (say 98% passing 150 mm, Liquid Limit of 45% and Plasticity Index of 25%).
b.Removal of the spec and replacement with a description and location of the material - possibly defined by survey.
c.We reprice the supply and allow for modification of the material so that we can be sure we are supplying conforming material.
3.Attached is a specification for the Western Creek to Cape Lambert Rail. Page 98 shows the spec for Common Fill. We previously supplied material conforming to this and I suggest that maybe your client will agree to adopt it. Also attached are 3 test results from that job. You will see that all 3 conform to the looser Atterberg requirements of the WCCL project, but that one fails the spec proposed for the power station with a PI of 23% and another just fails with a Liquid Limit of 36%. This illustrates my concerns about guaranteeing the current proposed spec.
4.We won't do liquidated damages. I understand your concerns with load out times. I am happy to trade liquidated damages for your right to rectify (for example an extra loader if we do not load out quickly enough) and deduct the cost of this from our invoice.
Mr Jenkins requested a meeting with Mr Mauritz to deal with the matters raised in the email. Based on that email, he considered that unless CRS could guarantee 100% compliance with the Rio specifications, then Carr might have to consider sourcing common fill material from the 6‑Mile Borrow pit.
An email from Mr Astill to Mr Mauritz and Mr Bartlett (exhibit 44) dated 1 December 2008:
I must have missed something, I thought we were selling the Common Fill to Carr Civil at $5/t, yet I have a PO from them for $6/t …
I have invoiced at $6/t thinking I've missed an email upping the price, but feel I have to confirm instead of making an idiot of myself to the client. At least you two know I'm an idiot already …
Mr Bartlett responded at 7.48 am on 2 December 2008:
Good, $6 is better than $5.

A purchase order is given by Carr to CRS

The purchase order is dated 13/11/08 (exhibit 26) to Consolidated Rock, job number 000622:
Please supply the following items in good order and condition and quote the above number on invoice:
[Handwritten:]
General fill material
Supply, precondition & load
@ $6/Tonne
As per Rio Tinto Specification Agreed
Following the purchase order, Mr Bartlett:
59.On 14 November 2008:
(a)CRS began delivering common fill material to the 7‑Mile site;
(b)CARR began 'back-loading' the top soil material which had been removed from the Pad;
(c)CRS had agreed to accept the increased price of $6 per tonne for the common fill; and
(d)CRS had provided Atterburg test result which demonstrated the common fill complied with the Rio specification;
60.Back-loading refers to the process where after each truck dumps its load of Common Fill from CRS it is re-loaded with the unsuitable topsoil material CARR had removed from the Pad and carried to the Mount Regal Quarry where CRS charged CARR a fee to dump it.
I am satisfied the purchase order evidences the agreement made orally between the parties at the Carr Karratha office meeting.

The 7-Mile Project earthworks

On 4 November 2008, Mr Roberson attended the start‑up meeting for the 7‑Mile project held in Dampier. Earthworks commenced on the pad on 12 November 2008.
Prior to the delivery of the common fill Carr had removed the topsoil from the 7‑Mile Pad area and placed it nearby. Unsuitable material from the 7‑Mile site was back‑loaded onto the trucks and transported to the Mount Regal Quarry.
Mr Bartlett said he went to the pad. He met Mr Jenkins out there once. He met Mr Roberson out there once. He went twice to look at product. Mr Jenkins said he never went out there. Mr Bartlett said that is incorrect. He could drive to the location (ts 134 ‑ 135). Nothing turns on the difference in recollection.
From November 2008 to March 2009, Carr provided haulage services to CRS to the value of $274,961.
The services and value of those services were not disputed between Carr and CRS.
By 8 March 2009 it appears no more material was delivered to the 7‑Mile site by CRS. Administrators were appointed on 26 March 2009.
CRS began loading common fill material onto trucks for delivery to the 7‑Mile Site from on or about 14 November 2008.
There were about 10/12 trucks involved in the project and, for a portion, at least, operating on a 24‑hour shift. They would do about 20 loads a day.
The 7‑Mile Site was shut down for the Christmas period. Work resumed in the first week of January 2009.

Blending process

Mr Bartlett described the process of blending. Blending common fill material was important to lower the Atterberg index level.
Blending common fill material to lower its Atterberg limit involved:
(1)taking the current pile of unsuitable common fill material;
(2)taking sand located from a nearby riverbed; and
(3)blending riverbed sand into the unsuitable common fill material.
The riverbed material was low in plasticity which meant that when it was blended with the common fill, it would lower the overall plasticity of the common fill.
The aim of the blending process was to ensure that the Mount Regal common fill material achieved a Rio specifications of 35% plasticity index and 25% liquidity index. CRS was required to blend the material as it had become apparent to Mr Bartlett that the common fill on site at the Mount Regal Quarry would not meet the Rio specifications in its natural state.
Mr Bartlett recalled during the one week per month in which he was on site, the common fill material conformed to a Rio specifications of 35% plasticity index and 20% liquidity index around 80% of the time.
On 25 November 2008, Mr Bartlett sent an email to Mr Roberson (exhibit 40) attaching results and stating:
Please see attached results.
As you can see we are certainly on top of things at the quarry and the results are excellent.
As mentioned before we are working on the o.150 mm and 0.075 mm sieve size and have almost achieved the desired result, however we must be very careful as they are the two sieves that affect the atterberg limits the most ie LL and Pl and given we have the atterbergs perfect they are really of little concern as mentioned before (only out by 1‑2%).

The sampling process

On or about 15 November 2008, Mr Roberson received an email (exhibit 28) from Western Geotech attaching test results for the 7‑Mile site pad prior to the import of common fill (exhibit 29). On 17 November he received an email from Western Geotech attaching test results from Mount Regal Quarry (exhibits 31 and 32):
64.… I recall speaking with Bartlett on the telephone about CRS experimenting with blends of the common fill material and when I read the test certificates I concluded that CRS was blending the common fill material with sand to work out what blend would conform with the R10 Specification …
65On or about 19 November 2008, I received an email from Bartlett which attached test certificates [exhibit 33]. Those certificates did not include Atterberg tests.
66.On or about 20 November 2008 at 12.27pm, I received an email from Western Geotech which attached certain certificates of tests results [exhibit 38].
…
68.On or about 22 November 2008 I received a telephone call from Paul Jackson, the site supervisor from CARR at the 7-Mile site. From that conversation, I understood that rubble (blue rock) was appearing in the Common Fill material which was coming from the CRS Mount Regal Quarry.
69.In response, I telephoned Mauritz and said to him (in effect), 'please look into the rubble coming on to site'.
70.Mauritz answered (in effect), 'I will be out at the quarry soon and will look at it'.
71.On 23 November 2008, in the morning, I again spoke with Mauritz, who said to me, among other things (in effect) 'CRS is ready to load the common fill material'. Following that conversation I understood that the problem with the blue rock had been resolved.
Mr Roberson received other test certificates and understood that the common fill material coming from the Mount Regal Quarry conformed with the Rio specifications.
Mr Bartlett said there was some audit sampling done by SKM at the Mount Regal Quarry and it happened twice. There is some confirmation for at least one sampling by SKM in an email of 16 December 2008 (exhibit 66).
Mr Astill observed sampling by CRS at the very start of the job. He was present when the samples were placed into approximately 10 kg bags. The bags were loaded onto vehicles and driven into Karratha for analysis. Sometimes Mr Astill witnessed the taking of samples; sometimes he took the samples. Sometimes he simply received and forwarded sample results.
What I did was, would let the quarry manager know that we were taking a sample which - we'd stand all the machines down away from the face we were digging. You'd go into the face and you'd take a sample from - you combine a sample of two or three, four different locations across the stockpile, or across the digging face, put them into one sample bag, and deliver that sample bag through to the testers in town.
… The sample results would be sent through to me, and I would forward those results onto Mr Bartlett or Mr Mauritz.
We sampled traditionally on a daily basis, the - yes, sampling on a daily basis, we knew that was - that would reach the majority of the targets we had to hit, as far as sampling went.
… Off the top of my head, I think it was about two and a half thousand cubes, but that's from memory (ts 151).
Mr Astill described further the sampling process:
31.To the best of my recollection, the sampling process for common fill material from Mount Regal Quarry was conducted as follows:
31.1a digger drove to the top of a stockpile and dug three trenches at intermittent points;
31.2the three trenches were dug as deep as the digger could reach;
31.3the digger placed the material gathered from each trench into a stockpile adjacent to each trench; and
31.4the 10 kg bags were filled with common fill material from each of these three smaller stockpiles.
…
35.Further, having reviewed document 9.0195, which attaches the specification CRS used on an earlier Rio Tinto project referred to commonly as the 'Western Creek to Cape Lambert Rail' project, I was confident that CRS could again meet those specifications with the common fill material that was available for use from Mount Regal Quarry. I was confident that CRS could meet the plasticity and liquidity figure requirements in the Western Creek specification as:
35.1those figures were more relaxed than the figures Carr was required to meet for the Project; and
35.2those figures more closely resembled the unblended common fill situated at the Mount Regal Quarry.
36.I do not recall ever being approached by Carr staff in respect of the quality of the common fill material when it was being laid on site.

Emails were exchanged (exhibit 89). Mr Land emailed Mr Glover on 21 April 2009 at 5.11 pm indicating a balance of $1,382,057.01. He proposed a monthly payment of $100,000. The debt would not be repaid until June 2010. 'Delay is not considered acceptable unless Carrs agree to pay interest at commercial rates. Alternatively, the monthly payments would need to be increased to clear the debt much earlier'.
Mr Land received a reply from Mr Glover on 23 April 2009:
Bruce,
We are in a situation where there are a number of false rumours circulating the market about Carr Civil's solvency related to the Consolidated Rock administration. This has put us under significant short‑term cash flow pressure to appease our current suppliers.
I would still commit to $100,000 per month commencing 15 May ‑ 15 July, however by August our current issue with appeasing suppliers should have been improved enough to allow an increase to $200,000 per month (exhibit 89).
On 15 May 2009, Mr Land sent a document (exhibit 94) containing the wording of a letter that would be required asking that it be signed on Carr's letterhead and returned in the next two days.
The letter was returned duly signed, attached to an email of 4 June 2009:
Dear Sirs
Debt owed by Carr Civil Contracting Pty Ltd ('Carrs') to Consolidated Rock Services Pty Ltd (Administrators Appointed) ('CRS')
On behalf of Carrs, I confirm the following:
1.I have the requisite authority to sign this letter and bind Carrs to this agreement.
2.As at 22 April 2009, Carrs was indebted to CRS in the sum of $1,382.057.01, subject to acceptance by CRS of the final pre‑administration invoice number 2346 dated 31 March 2009 from Carrs to CRS in the sum of $17,977.21.
3.This invoice has now been accepted by CRS, giving a final agreed balance owing of $1,364,079.80, before the payment of $100,000 received 13 May 2009.
4.Carrs repaid $100,000 of this debt on 13 May 2009, pursuant to the repayment plan proposed by the Administrators via email from Bruce Land to Andrew Glover dated 23 April 2009. A copy of this email is attached to this letter and forms part of this agreement.
5.Carrs undertakes to repay the balance of the agreed amount owing to CRS, namely $1,264,079.80 on the following basis:
a.A payment of $100,000 for the month of June, to be paid so that clear funds are received into the Administrators' bank account on 15 June 2009.
b.Monthly payment of $200,000 for the months of July to November 2009 inclusive, also to be paid so that clear funds are received into the Administrators' bank account on the 15th day of each month, except for August and November when they are to be received as clear funds on Friday 14th August 2009 and Friday 13th November 2009 respectively.
c.The balance of the debt is to be paid, which amount is in the process of being finalised, on Tuesday 15 December 2009. If all payments are made in accordance with this arrangement, this amount will be $164,079.80.
d.If any of the payments are not received as clear funds by the due date, CRS is entitled to charge interest of 15% pa, calculated daily, on the amount of the missed payment until it is paid, and the Administrators reserve their rights to terminate this payment arrangement and seek immediate repayment of the entire balance then owing.

Carr's decision makers knew of the problems with the common fill material

Evidence of Mr Blayney:
And Mr Glover had authority to sign such a letter, didn't he?‑‑‑He did.
And he had some discussions with you before it was sent off?‑‑‑Yes.
…
Mr Coyle, as I said I didn't believe there was an issue at that stage.
No but no credence at all?‑‑‑As I said I failed to find it credible given that we had test certificates that showed 100 per cent compliance (ts 295).
Mr Roberson was taken to the letter from Michelle Keller of 8 May 2009 (exhibit 91):
And in the last paragraph they request that Carr provides an explanation of the discrepancy, and suggest a meeting to discuss the matter further. Now, you regarded this letter as a very serious matter that required urgent attention, didn't you?‑‑‑That's correct.
…
And you told Mr Blayney about that almost immediately, didn't you?‑‑‑No, I didn't.
Why not?‑‑‑I attend to operational needs at that stage.
Sorry. I beg your pardon?‑‑‑I attended to operational needs at that stage, and I can't remember why I didn't speak with him immediately after that.
Well, are you saying that you were too busy to pass on this critical communication to Mr Blayney?‑‑‑Mr Blayney was, through that period, was on leave as well.
But you were able to contact him, weren't you?‑‑‑I didn't discuss it with him.
You were able to contact him when he was on leave, weren't you?‑‑‑Can't remember where he was.
I didn't ask you where he was. I will ask the question again. Were you able to contact him while he was on leave?‑‑‑I can't remember.
Do you recall him telling you before he went on leave, 'Please don't contact me whatever happens'?‑‑‑No.
…
So you didn't decide not to do it, you just didn't get around to it?‑‑‑I had a lot on my plate back then.
…
What else was on your plate that was more pressing than passing on this communication to Mr Blayney?‑‑‑The operational needs of the company.
And what precisely were they at that time?‑‑‑I was doing estimating, project management, operational management.
…
Mr Blayney later became aware of your receipt of this letter?‑‑‑Yes, he did.
Did you make him aware that you had received this letter?‑‑‑Yes.
When did you do that?‑‑‑I can't remember exactly the date (ts 204 ‑ 206).
And in your - do you recall what you and Mr Blayney said to each other when you discussed the letter of 8 May 2009?‑‑‑We need to find out what the extent of the matter is, and hence writing the letter asking for the information.
All right. And did you say to him that this was a major concern or problem or issue?‑‑‑I did highlight the fact that it's ‑ ‑ ‑
Sorry?‑‑‑I did highlight the fact that it is a serious matter.
So you highlighted the fact that this was a serious matter, and he didn't disagree with that, with your comments in that regard, did he?‑‑‑No (ts 207).
During the project, Mr Roberson said Mr Jenkins worked out of the same onsite office at the power station. They would share information and spend hours together. Mr Roberson told Mr Jenkins about the non‑conforming certificates and showed them to him. The test certificates table is exhibit 127. The certificates are exhibit 128.
Mr Roberson accepted that as at April Carr was behind in payments owing under invoices rendered by CRS and there were rumours. He did not know whether Carr was in a position to pay its debts. He was not aware of Mr Land's communications.
Mr Blayney said the letter from SKM of 8 May 2009 was not a matter of major concern, 'For the simple fact that we had a bundle of test certificates that showed the material being brought onto the pad was compliant':
Why not?‑‑‑For the simple fact that we had a bundle of test certificates that showed that the material being brought on to the pad was compliant. All the test certificates had been showing that so therefore, you get one lot of testing and I note - and - as I say in my statement, and Albert spoke to me in late May of 2009 and raised the issue. As I said, at that stage, I had a few personal issues and I wasn't necessarily day to day in Karratha so Albert acceded to that. He raised the issue with me and I quite clearly outlined in my statement that I just - I failed to believe it. You can't have all the test certificates showing compliance, and as they say, a range between 30 and 39 and the plasticity index between 14 and 23, to have all these compliant test certificates and then all of a sudden you've got material that doesn't - that so wildly differs. So when Albert spoke to me, and I outlined it in my statement, I said, 'No, I don't believe it. I struggle to believe this. I suggest that we go and get our own test results done'. The interesting thing that flowed on from that is that if it had been an issue - a major issue and if SKM had really believed it then I suggest that they would have spoken to us prior to 23 August. No, sorry, 23 July (ts 288).
From late May, Carr gave the letter credence but Blayney was told about the letter in late May. Mr Roberson and Mr Blayney drafted the response to SKM on 25 May. Mr Blayney could not say when he was aware, how much prior to 20 May he was aware, he had personal issues.
Mr Coyle, as I said earlier on, there is a clause within the Rio Tinto specification that material can be accepted at engineer's discretion. Therefore, we put up all test certificates, including those that showed 37 per cent, and some that showed 20 per cent plasticity and - to the engineer, the engineer being SKM, and they were accepted.
But Mr Blayney, it's your case, isn't it, in these proceedings, as set out in your court documents, that CRS was obliged to provide certificates that complied strictly with 35 per cent, less than 35 and less than 20 per cent?‑‑‑They were required to provide material that complied with specification, Mr Coyle (ts 290).
Clearly the relevant directing minds of Carr - Mr Blayney, Mr Glover and Mr Jenkins - knew of the SKM letter and its portent before Mr Glover compromised the debt. Mr Blayney, no doubt because of personal distraction, underestimated the portent. But the conclusion that Mr Glover's letter was signed in knowledge of serious problems in compliance is inescapable.

Findings on the evidence

The evidence sustains the following findings on the balance of probabilities:
•Mr Mauritz had practical authority to represent CRS and agree contractual terms;
•CRS knew that common fill would have to comply with the Rio specifications and in particular the Atterberg limits of liquidity less than 35%, and plasticity index less than 20%;
•specifically, Mr Mauritz told Mr Blayney that CRS was well aware of the Rio specifications and is keen to supply compliant material;
•at the Mount Regal Quarry meeting, Mr Mauritz represented that CRS could supply 450,000 tonnes of common fill or 180,000 cubic metres;
•at the Mount Regal Quarry meeting, Mr Mauritz represented he would guarantee the common fill would be 100% compliant;
•at the Carr Karratha office meeting, Mr Mauritz agreed to provide common fill at $6 a tonne with a guarantee of 100% compliance with the Rio specifications;
•the guarantee was a condition of the contract. The reasonable inference to be drawn from all the circumstances is that Carr would not have entered into an agreement unless CRS would supply common fill material that entirely conformed to the Rio specifications;
•the agreement reached at the Carr Karratha office was evidenced by the purchase order (exhibit 26) 'as per Rio specifications agreed';
•although a supply common fill contract was prepared by Mr Roberson and sent by Mr Jenkins to Mr Mauritz, it was not executed by either party. It was prepared after the agreement had been concluded and does not evidence the agreement or form part of it;
•CRS had an obligation to take samples from every 2,500 cubic metres of common fill material and forward them for testing;
•there were 10 non‑conforming test results. CRS made Carr aware of these;
•Carr considered it was a matter for the client (engineer's discretion) whether to accept delivery;
•having regard to the limited number of non‑compliant certificates, and SKM's eventual acceptance, that was a reasonable position to adopt;
•the fact that Carr chose not to insist on full compliance in respect of those 10 samples did not relieve CRS of its agreement to deliver common fill that was 100% compliant with the Rio specifications;
•CRS was not able to supply all the common fill material from the Mount Regal Quarry;
•common fill material from the 6‑Mile borrow pit was not placed on the pad but used to form the bund;
•Carr believed that CRS had supplied common fill material consistent with the test certificates;
•CRS was placed into administration on 26 March 2009;
•subsequent testing of the pad by SKM and Carr confirmed that the common fill material was grossly non‑compliant with the Rio specifications;
•the most probable reason is that CRS did not deliver fully compliant material, contrary to representations made and to an express term of the contract, there being no source of common fill material delivered for the pad other than from the Mount Regal Quarry;
•Mr Glover had authority to act on behalf of Carr and to bind the company; and
•Mr Glover had authority to enter into the payment agreement evidenced by exhibit 94.

The plaintiff's case

The plaintiff's case that there was an agreement between CRS and Carr for the supply of common fill is not in issue. Nor is the obligation to pay invoices.
As at 29 May 2009, Carr owed $1,264,079.80 and had agreed a repayment schedule.
The main issue between the parties is whether CRS carried out its part of the bargain and whether representations were made which misled Carr.
The second subsidiary issue is the May 2009 compromise agreement.
CRS was to supply approximately 450,000 tonnes of common fill material that complied with the Rio specifications.
I am satisfied that it did not do so. While what went wrong may never be determined, the test results on the pad in June 2009 establish that CRS failed to perform the agreement to deliver 100% compliant common fill material.

What are the consequences?

A convenient test for the essentiality of a term of an agreement is Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632. Jordan CJ (Davidson J concurring) said (641 ‑ 642):
The nature of the promise broken is one of the most important of the matters. If it is a condition that is broken, i.e., an essential promise, the innocent party, when he becomes aware of the breach, has ordinarily the right at his option either to treat himself as discharged from the contract and to recover damages for loss of the contract, or else to keep the contract on foot and recover damages for the particular breach. If it is a warranty that is broken, i.e., a non‑essential promise, only the latter alternative is available to the innocent party: in that case he cannot of course obtain damages for loss of the contract: AH McDonald & Co Pty Ltd v Wells.
The question whether a term in a contract is a condition or a warranty, i.e., an essential or a non‑essential promise, depends upon the intention of the parties as appearing in or from the contract. The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor: Flight v Booth; Bettini v Gye; Bentsen v Taylor Sons & Co (No 2); Fullers' Theatres Ltd v Musgrove; Bowes v Chaleyer; Clifton v Coffey. (footnotes omitted)
In my opinion, there can be no clearer example of an essential term of a contract than this. Common fill material had to be compliant with the Rio specifications. A power station with heavy turbines was being built on top of it. It was an essential term of the contract and one which Mr Mauritz accepted on behalf of CRS when he said he could guarantee compliance.
The normal remedy when the whole purpose of the contract is negated because goods of a different quality are delivered would be return of the goods. In the unusual circumstances of this case, that is neither practical nor possible.
If test certificates had been made available to Carr during the supply of common fill material showing the liquidity limits and plasticity index that were discovered after the contract had concluded, Carr would have had the opportunity of rejecting the delivery. However, no certificates indicating non‑compliance with the Rio specifications to such a gross degree were ever given to Carr during the course of the contract. Why they were not remains a mystery. However, the failure to provide such certificates deprived Carr the opportunity to reject delivery of grossly non‑compliant common fill material.
Carr was entitled to rely on the test certificates that were supplied, most of which showed compliance with the Rio specifications. In reaching this conclusion, I do not overlook the non‑compliant certificates. Carr personnel were aware of them. I accept the evidence of 'engineer's discretion', effectively leaving it to SKM or Rio to decide whether the common fill should be accepted or rejected. The fact that Carr personnel acted in this way does not relieve CRS of its contractual obligation to deliver common fill material that was guaranteed to be 100% compliant.
Although, in cross‑examination and in final address, Mr Coyle emphasised that testing was only of a very small portion of each 2,500 cubic metres, I accept, in particular, the evidence of Mr Blayney and Mr Jenkins that the testing should be representative of the entire batch.

The plaintiff

I accept that the court will be cautious in categorising the contract as an entire contract: Hoenig v Isaacs [1952] 2 All ER 176. CRS submitts:
46.The full effect of acceptance of the alleged No Payment Term would be that CRS would not be entitled to any payment at all for the 432,802 tonnes that were supplied to Carr (for which under the Supply Agreement, it would be entitled to payment of $2,596,812) regardless of:
46.1the proportion of the total supply of 432,802 tonnes that was non‑compliant;
46.2the extent by which the non‑compliant material did not meet the Rio Specification; and
46.3whether Carr suffered any loss by reason of its acceptance of any such non‑compliant material.
It is submitted that the court should reject the defence because the evidence does not support it on a no‑payment term. It would be inconsistent with the draft subcontract and such a term would be liable to be struck out as a penalty.
To talk of the case as involving a 'no‑payment' term is apt to distract. The true question is whether the supply of all the common fill material, pursuant to the contract, would be compliant with Rio specifications. I am satisfied that was an essential term. Anything less makes no sense. The evidence abundantly establishes that there was such a term.
For reasons already expressed, the subcontract document drawn up, but never executed, is not a contractual document.
Nor am I persuaded that the no‑payment term is a penalty. If a party contracts to supply certain goods and does not do so, the consequence is not a penalty.
The complicating factor in this case is the practical inability of Carr to return the goods and recover payment. In the normal case, if payment is made for goods that do not meet the description, the goods are returned and the payment is returned. As I have said, this is neither practical nor possible. This was a contract where the promise was to produce a result: the delivery of compliant common fill.
If it is the case that Carr received a benefit, it did so when it had no opportunity to reject the delivery. This is because of the continuous flow of compliant test certificates. CRS controlled the Mount Regal Quarry, controlled the blending, controlled the testing.
In the event of a non‑compliant certificate, as happened, Carr had the opportunity to either reject that delivery or leave the delivery to Rio Tinto and SKM. However, for many deliveries, the certificates lagged behind because of delays with the Western Geotech Laboratory. This meant there was no practical method of rejection by Carr.

The principles in Cooper v Australian Electric Co (1922) Ltd (1922) 25 WALR 66 are appropriate:
[If] the employer has an opportunity of examining the work on completion and he accepts the work as done, this would be prima facie evidence that it was properly done. Where, however, the work is on a chattel, the property of the employer, and the new work and the old are so intermixed that the one cannot be separated from the other without injury to the chattel, his liability to pay for it depends upon the utility of the work done. If the chattel is rendered more valuable by what has been done, the employer must pay the fair value of the workmanship. If it is in no wise improved in value and the work has been so negligently done as to be worth nothing, the employer cannot be called upon for payment. The mere retention by the employer of his own chattel does not in such a case raise any inference of a waiver of the terms of the contract, or of entering into a new contract to pay upon a quantum meruit (68).
There was no practical opportunity to return the material because once it was delivered it became part of the 7‑Mile pad. On 23 March 2009, when the site was handed over, any opportunity to remove common fill material was extinguished.
For these reasons, I find that Carr has established its right to avoid the supply contract. In simple terms, CRS did not deliver what it guaranteed it would: 100% compliant common fill material.

The compromise agreement

Although Carr raises an estoppel point, I am not satisfied that it has substance. At the time of the compromise agreement evidenced by the letter from Mr Glover of 29 May 2009, Carr was on notice from SKM that there were significant problems with non‑compliance of the common fill material. Mr Glover had authority to enter into the agreement. It was a binding agreement.
However, its terms are of significance.
CRS pleads, at par 28:
Upon the acceptance by the Plaintiff of the instalment payments offer as pleaded in par 27 above, an agreement (Compromise Agreement) arose between the Plaintiff and the Defendant by which the Plaintiff agreed to forebear from taking steps to recover the Admitted Sum on the terms set out in Instalment Payments Offer.
After one payment, Carr made no further payment, at the direction of Mr Blayney. So CRS no longer forebears to sue. These proceedings are the result. However, regardless of what the parties believed to be a sum owing by Carr to CRS, as this judgment pronounces, there is no such amount. It would be an affront to common sense and justice to hold a party liable to pay an amount in consideration of forbearance to sue when, on examination, no such amount is owed. The compromise agreement depends on the validity of its claim to be paid for the efficacy of any amount owed. I have held that it failed to deliver what it contracted to deliver and Carr has no obligation to pay it.

Misleading and deceptive conduct

Prior to the supply agreement, Carr pleads:
28By the conduct pleaded in paragraph 26 and by reason of the matters pleaded in paragraphs 21, 24 and 25, the defendant by counterclaim represented to the plaintiff, in effect that:
(a)In the period 2 October to 10 October 2008:
(1)the defendant by counterclaim shall cause a NATA registered laboratory to test a representative sample in each 2500 cubic metres of material which is intended to be supplied, and prior to supply, shall provide a copy of the test certificates to the plaintiff by counterclaim for forwarding to Rio Tinto pursuant to the 7‑Mile Power Station Contract;
(2)the tested representative samples shall be consistent with the material in each 2500 cubic metre supply;
(3)the defendant by counterclaim shall supply 100% Compliant Material; and
(4)the defendant by counterclaim shall supply up to 450,000 tonnes of 100% Compliant Material.
(b)In the period 10 October to 13 November 2008:
(1)the defendant by counterclaim would ensure that 100% of the material supplied to the plaintiff by counterclaim is Compliant Material; and
(2)in consideration for supply of 100% Compliant Material, the defendant by counterclaim will accept payment of $6 per tonne.
Carr also pleads reliance on the representations.
I have found that, effectively, the matters pleaded in par 28(a) (3) and (4) and par 28(b)(1) and (2) are terms of the agreement. Those terms were breached. There is no evidence that the other representations were misleading or deceptive. There is no evidence from CRS how sampling was conducted during the three weeks a month that Mr Bartlett was elsewhere and not supervising the CRS operations. The common fill material supplied was seriously non‑compliant, but why it was so remains unknown. I cannot positively find that the original test certificates supplied by Mr Astill were false or misleading. There is no evidence that either the sampling by Mr Bartlett (or Mr Astill) or testing by the Western Geotech Laboratory, was defective. Obviously something went wrong, but I cannot say what.

Claim for breach of duty of care

Carr claims:
38By reason of the facts and matters pleaded in paragraphs 21 and 24 to 27, the defendant by counterclaim held itself out as having special knowledge and skill in relation to the specification of material supplied from the Mt Regal Quarry, relevantly, the liquid limit and plasticity index of such material.
39By reason of the facts and matters pleaded in paragraphs 20 to 22 and 24 to 27 the plaintiff by counterclaim relied on the defendant by counterclaim to provide accurate information in relation to the specification of material supplied from the Mt Regal Quarry, relevantly, the liquid limit and plasticity index of such material.
40By reason of the facts and matters pleaded in paragraphs 38 and 39 the defendant by counterclaim owed the plaintiff by counterclaim a duty to provide accurate information in relation to the specification of material from the Mt Regal Quarry which it supplied to the plaintiff by counterclaim.
…
43The information pleaded in paragraph 41 was false and not based on reasonable grounds.
Particulars
(a)The plaintiff by counterclaim repeats, as particulars, the facts and matters pleaded at paragraphs 30 and 31.
44By reason of the facts and matters pleaded in paragraphs 38 to 40, 42 and 43, the defendant by counterclaim intended to supply the information pleaded in paragraph 41, alternatively supplied the information in wilful disregard as to the truth and thereby intentionally misrepresented the true specification of the material which was supplied from the Mt Regal Quarry, relevantly, the liquid limit and plasticity index of such material.
There is no evidence to conclude that CRS supplied the information in wilful disregard to its truth or intentionally misrepresented the true specification of the material which was supplied. Obviously, that is one possibility, but no more than one. I am unable to make a determination on the balance of probabilities.
An alternative plea is par 45:
45Further or alternatively to paragraph 44, by reason of the facts and matters pleaded in paragraphs 38, 39, 42 and 43, in breach of the duty of care pleaded in paragraph 40, failed to provide complete and accurate information in relation to the specification of the material which was supplied from the Mt Regal Quarry, relevantly, the liquid limit and plasticity index of such material.
It is clear that the common fill material was seriously non‑compliant. The extent of the non‑compliance was never conveyed by CRS to Carr in circumstances where a duty arose to provide accurate information. CRS failed to discharge this obligation.

Loss and damages

As a direct result of the supply of non‑compliant common fill, Carr entered into contract variation number 15 in the amount of $500,000 effectively paid by Carr to Rio Tinto. Having considered the evidence from Mr Blayney on this point, I consider this was a reasonable settlement of the claim and brought about directly by the failure of CRS to deliver 100% fully compliant common fill material.

Other work

Carr persisted in a claim of loss of chance on the basis it did not obtain other contracts for work in relation to the 7‑Mile Power Station Project, including the evaporation pond contract.
Mr Blayney gave evidence of a hearsay nature as to the reason why Carr had been excluded from consideration for certain jobs. This evidence was admitted only for the fact of the discussion, not as truth of its contents. There is no direct evidence sufficient to form a claim for damages that the consequence of CRS's failure to meet its contractual obligation led to any consequential loss by Carr over and above the direct loss of $500,000.

Conclusion

The plaintiff, CRS, failed to supply to the defendant, Carr, what it had contracted to supply: common fill material compliant with Rio specifications. Had this been discovered in time, Carr would have been entitled to reject the entire delivery. But it is now impossible for Carr to return the common fill to CRS.
Although there was a compromise agreement, there is no amount which Carr is obliged to pay CRS.
In addition to return of the money already paid, Carr is entitled to damages for CRS's failure, measured by the amount it paid to compromise its action with Rio Tinto.
Normally I would go on to specify the precise amounts in issue entitled to be recovered by Carr. However, CRS is in liquidation and I was informed from the bar table that there is no money available. It is a matter for Carr whether it wishes to specify an amount in what would seem to be a pointless exercise, but I will undertake the exercise if it wishes.
The plaintiff's case is dismissed and the defendant's counterclaim succeeds.